Social Security Privatization - The Ghertner Plan

I know the title is a bit presumptuous -- no doubt a great many wiser thinkers than I have come up with the same plan already, but here goes anyway.

Frequent Catallarchy commenter Lisa Casanova asks a great question in a thread on Social Security. Following her question will hopefully be my great response:

I find that the biggest stumbling block in debating with people about Social Security is that they sincerely believe that it prevents the elderly from living in abject poverty, and their personal notions of “justice", as they conceive it, requires that the prevent that from happening. If you hold that justice demands abolishing the system (and I agree, it does), have you ever sucessfully convinced someone that abolishing the system would be just? If so, how? This may seem elementary and silly, but I found myself somewhat at a loss when a friend told me, emphatically, that we need forcibly funded social security because “People simply WILL NOT take responsibility for the elderly. They just aren’t like that.” How can someone like this be convinced that not having social security fits with her notions of “justice” (not letting elderly people live in poverty?), other than rebuilding her notion of justice from the ground up (not something I’m really capable of anyway?).

It's rare that anyone ever admits to me that I have convinced them of something that they did not already believe. It has happened - I've convinced some acquaintances of the undesirability of campaign finance reform, the undesirability of public schools (more precisely, support for vouchers), the undesirability of minimum wage laws, the undesirability of trade restrictions, and the undesirability of an Objective conception of ethics. It is possible that other people have been convinced by my arguments but have not told me directly.

I like it when people are convinced that my arguments are correct, but that is not my only goal in writing. Besides the enjoyment I get from the act of writing and debating, doing so also helps me clarify, refine, and sometimes revise my thoughts.

Social Security is one example of this kind of revision. I was at one point a strong supporter of Cato's proposed reforms. Now, after reading the various Austrian critiques and witnessing the recent attempts at "privatizations" of electricity supply, prisons, education, and war, among other government pursuits, which are hardly privatizations at all, but merely cases where the state contracts out to private firms what it would otherwise do itself, I am much more skeptical. These state contracting schemes would not be so terrible but for the fact that when they fail (as they all too often do), they give a bad name to real privatization -- i.e. getting the government out of the business altogether, or at least reducing its role considerably rather than merely shifting it from producer to manager -- and that the inevitable corruptibility of politicians leads to backroom deals for their political donors and other personal contacts. Conceivably, it might be the case that private contractors do a better job than public employees, but without the market mechanisms of price and competition, there is not much of a difference between the two. The government is still the monopoly supplier of the goods and services it claims dominion over, or the monopsony consumer of the same, and so it determines prices not on the market, but by the arbitrary whims of politicians and their political cronies. I still have some faith that the Cato plan will be somewhat better than the status quo, but not much faith and not much better.

I think a better plan would be to turn Social Security into what it really is and what it pretends not to be: just another redistributionist welfare program. This could be accomplished by means testing benefits -- that is, by restricting benefits to only the elderly below a certain arbitrarily determined poverty line -- and funding these benefits entirely with general revenues, as is currently done with most other social welfare programs. This promotes transparency in government by making it clear to people what the program really is, reduces inefficiency by reducing the amount of transfer payments sent back and forth to the same people, and reduces the number of government roles in the economy by restricting the state to what it already (falsely) claims it does well -- providing charity to poor people -- and by getting it out of the business of mandating retirement savings.

In the process, this reduces the arguments libertarians need to deal with by one: instead of having to criticize both mandated retirement savings and coercive charity, we have only coercive charity. And if the vast majority of people choose to be responsible and save for their own retirement rather than rely on handouts, as libertarian proponents of privatization expect them to do, then the amount of coerced charity will be orders of magnitude lower than the currently existing amount of coerced savings.

More importantly, though the state does a poor job of providing charity to those who need it -- which is expected since the state does a poor job of nearly everything except wasting productive activity -- I don't think it would be the worst thing in the world to leave redistributionist charity for last, and in the meantime reduce the government's role in even more destructive areas - especially those in which the pattern of redistribution moves from the poor to the rich, as is the case with Social Security. Better to help the poor at the expense of the rich than help the rich at the expense of the poor. Better still to exploit no one, but that is not an option on the table right now, and a second-best option may have to suffice.

This same argument applies to public schools as well: means test benefits so that only children of truly poor families receive a wholly or partially subsidized education. A properly structured voucher program could do this.

As for the argument that "People simply WILL NOT take responsibility for the elderly [poor, etc.]. They just aren’t like that," a few responses. First, what we all should want, ideally, is for the elderly to take responsibility for themselves by planning for their old age in advance. Those who don't -- and even in a truly civil society there will still be the unlucky and the irresponsible -- would best be supported by their children, friends, community members, and so forth. Voluntary charitable organizations, both religious and secular, would hopefully fill in the gaps.

The response to this is usually something along the lines of "Too many people are selfish, alienated, lacking social capital, etc., etc., and there will not be enough gracious and caring people willing to give voluntarily." But if that is the case, I often wonder, why would anyone who believes this expect a majority of the people to vote for policies that the majority itself doesn't support? If enough people are willing to voluntarily vote to tax themselves in order to fund these policies, why would we not expect these same people to voluntarily give of their own volition?

Of course, Loren E. Lomasky provides the cynical answer that "voting can be a low-cost way to indulge one's altruistic impulses," but I don't think that is the kind of answer most deliberative democrats are willing to accept.

One other argument I hear occasionally, and which I addressed in "If You Don’t Eat Your Meat, You Can’t Have Any Pudding," is the claim that charity is a public good and thus must be funded by government.

There are many other arguments in favor of coercive charity that need to be addressed, but for now I think the best thing to do would be to get all of our libertarian gripes into one least-bad basket by reducing programs like socialized retirement savings, education, health care, etc. into one single program of socialized charity.

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Well stated. I'm growing

Well stated. I'm growing less enchanted with the proposed changes (I'm not going to use the word "reform") to SS. Forced behavior isn't a hallmark of a free society, and if that behavior doesn't have the flexibility to move assets from stocks to commodities to real estate to money markets and back, then it will skew behavior the same way the tax code does. And that is NOT a Good Thing. I want COMPLETE control over mu assets, not the partial control the government is willing to grant me.

I'm in favor of the "Let's call it welfare" approach and institute means testing. Fold the FICA payrol taxes into the normal income tax. We've had good success at reducing income taxes over the past 25 years, and I see no reason to doubt that we can cut income taxes some more once we see how much less the Welfare for Seniors program is costing.

Micha: I'm sympathetic to

Micha: I'm sympathetic to your argument here, though I'm probably more of a mandatory savings guy myself (I readily concede I'm no libertarian). In general, while I do like the idea of means-testing, why not go all the way and simply take your leanings to their logical conclusion, by getting the government entirely out of the business of income supports, in favor of private charity? By leaving in a means-tested income supplement for retirees, don't you allow for a large possibility of moral hazard? If people know the government will step in with dollops of cash should they fail to save, won't many of them fail to save? At least Social Security as it's currently constructed sorta kinda incentivizes people to (at least) hold jobs, and stay employed for as long a percentage of their working lives as possible (for the record I favor radical overhaul of Social Security, but I digress). At the very least I think your plan had better put in a "minimum duration of employment" requirement, lest some people take advantage of the system.

P.B., Yep, moral hazard is


Yep, moral hazard is always a problem with any welfare program. And yes, I am willing to take my argument to its logical conclusion and completely privatize the system. But I see this as a good interim measure. And the moral hazard problem can be addressed somewhat by reducing benefits low enough to make them undesirable for most people, but high enough to satisfy the "don't let my grandmother eat dogfood" crowd.

Not that I was all that hot

Not that I was all that hot on the privatization plan to begin with (lukewarm maybe), but for what it's worth you've convinced me, Micha. This faux-privatization plan is probably not worth the complications.

Charles Murray's thesis in

Charles Murray's thesis in 'losing ground' seems to fit here.
Your system would pay (incentivize) people to be old and poor.
Let's look for a moment, just for fun, at what if it were means tested in the other direction - in order to qualify for the ponzi scheme payout,
you had to show you didn't need it, by proof of (unearned?) income.
Some people would be incentivised to plan ahead to make sure they saved enough to qualify. Some people would learn how to fake it.
Some people would fail, or not try.
This approach is obviously open to criticism, especially by liberals playing shell games and pointing to the poor victims - any possible arrangement has a poor victim who can pointed to as the shell is uncovered.
Much depends on how large the relative classes are -
how many could be incentivized to be rich instead of poor?
Compared to how many are "undeserving" rich (who would have met the income test anyway) and how many fail, not making the cutoff.
Perhaps this could be tested empiricly with a pilot program of those born in rhode island. Ah but that wouldn't be "fair" would it. Oh well.
OK, those born in (random city in coasta rica, not currently getting any ss payments.)
I'm not at all certain this method would have a better result.
But it would not be as worse as it might at first look - overall utility might work out close to the same, or at least the positive aspects would somewhat balance out the negative ones.
It's a thought experiment to show a flaw in your program design.
What is the benefit/purpose/social function of the current system?
It is so that the taxpayer doesn't have to live with his grandmother in law, and when she dies the body will be quietly disposed of. 15% of his paycheck seems like a bargain for this service. So the extended family is replaced by the nuclear family (M+F+2.3ch) which breaks down to (F+nch)(M+sportscar/mistress) which breaks down to 4.3[institutionalized person]
That we may ourselves someday be the unwanted old person is too far in the future to have much present value in the ulitily calculation.
Just as the breakup of the extended family pays a current benefit to the taxpayer, it also benefits the government. Disrupting extended family social networks inhibits conservation of cultural knowledge that could inform resistance - social control is aided when the takuru are isolated.

Kennedy, I'm not advocating

Kennedy, I'm not advocating the creation of a whole new program or infrastructure. Just divert some of what currently goes to funding Socvial Security into additional welfare benefits for poor seniors.

I'm not sure abolishing

I'm not sure abolishing benefits for the wealthy counts as "privatisation". I think it's just a benefit cut.

However, I prefer cutting benefits to whatever SS scheme the administration has up its sleeve.

- Josh

You do realize they'll build

You do realize they'll build a whole new infrastructure and to do your new means testing, right?

Why build means testing in to SS when you already have a means tested welfare program?

It wouldn't be having two,

It wouldn't be having two, John; it would be collapsing Social Security into the current system of explicit welfare, perhaps proving a higher income cut-off for participation.

If you are acknowledging

If you are acknowledging that SS is welfare then there is no reason at all not to abolish it. Considering you already have a means tested welfare program, what's the point of having two?